Chapter 7

VOIDABLE CONTRACTS

1390-The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible
of ratification.

RESCISSION ANNULMENT
(a) The basis here is vitiated consent or incapacity
(a) The basis here is lesion (damage). to consent.
(b) The defect here is external or intrinsic.
(b) The defect here is intrinsic (in the meeting of
the minds).
(c) The action is subsidiary.
(c) The action is principal.

(d) This is a remedy. (d) This is a sanction.

(e) Private interest governs. (e) Public interest governs.

(f) Equity predominates.
(g) Plaintiff may be a party or a third person.
(h) There must be damage to the plaintiff.
(i) If plaintiff is indemnified rescission cannot
prosper.
(j) Compatible with the perfect validity of the
contract.
(k) To prevent rescission, ratification is not required
(f) Law predominates.
(g) Plaintiff must be a party to the contract
(whether bound principally or subsidiarily).
(h) Damage to the plaintiff is immaterial.
(i) Indemnity here is no bar to the prosecution of
the action.
(j) Here, a defect is presupposed.
(k) To prevent annulment, ratification is required.

Voidable Contract Not Void Ab Initio

A contract where consent is vitiated, such as by violence or intimidation, is not void ab initio but only
voidable, and is binding upon the parties unless annulled by proper action in court
Grounds for Annulment (Declaration of Nullity)

(a) incapacity to consent

(b) vitiated consent

1391-The action for annulment shall be brought within four years. This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from
the time the guardianship ceases.

Effect of Prescription

If the action has prescribed, the contract can no longer be set aside.

1392- Ratification extinguishes the action to annul a voidable contract.

(a) Confirmation — to cure a defect in a voidable contract

(b) Ratification — to cure the defect of lack of authority in an authorized contract (entered into by
another).

(c) Acknowledgment — to remedy a deficiency of proof (thus, an oral loan may be put in writing, or
when a private instrument is made a public instrument).

Effects of Ratification

(a) The action to annul is extinguished (Art. 1392, Civil Code); thus, the contract becomes a completely
valid one. (Gutierrez Hnos. v. Orense, 28 Phil. 751).

(b) The contract is cleansed of its defect from the beginning.

Requisites of Ratification (Properly, Confirmation of a Voidable Contract)

(a) The contract must be a voidable one.

(b) The person ratifying must know the reason for the contract being voidable (that is, the cause must be
known).

(c) The cause must not exist or continue to exist anymore at the time of ratification.

(d) The ratification must have been made expressly or by an act implying a waiver of the action to annul.

(e) The person ratifying must be the injured party.

1393-Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract voidable and such reason having ceased,
the person who has a right to invoke it should execute an act which necessarily implies an intention to
waive his right.

Kinds of Ratification

(a) Express (oral or written)

(b) Tacit (implied — as from conduct implying a WAIVER).

1394-Ratification may be effected by the guardian of the incapacitated person.

Ratification by Guardian

(a) This Article refers to the ratification of a contract entered into by the incapacitated person.

(b) Since the person entitled to ratify is still incapacitated, his guardian acts in his behalf.

Ratification by the Injured Party Himself

Ratification can be made by the injured party himself, provided he is capacitated, or has become
capacitated

Distinguished from Action to Rescind

Art. 1394 does not refer to a rescissible contract entered into by the guardian in behalf of his ward.

1395-Ratification does not require the conformity of the contracting party who has no right to bring
the action for annulment.
Conformity of Guilty Party Not Needed

Reason: The guilty party’s consent is not needed; otherwise, he may find a way of getting out of the
contract by the simple expedient of refusing to ratify.

1396- Ratification cleanses the contract from all its defects from the moment it was constituted.

Retroactive Effect of Ratification

(a) Note the retroactive effect; thus, once ratification has taken place, annulment based on the original
defects cannot prosper.

(b) Although there is a retroactive effect, the rights of innocent third persons must not be prejudiced.

Example

A minor sold his land to X. When he became 22 years old, he became indebted to Y. To avoid paying Y,
the former minor decided to ratify the sale of the land. He then had no other property. May Y still
rescind the sale although at the time it was made he was not yet a creditor?

ANS.: Yes. Although ratification has a retroactive effect, still his rights as an innocent third person must
not be prejudiced.

1397-The action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those
with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these flaws of the contract.

Persons Who May Ask for Annulment

The victim (principal or subsidiary party) may ask for annulment, not the guilty person or his successor.
Reason: He who comes to equity must come with clean hands.

1398-An obligation having been annulled, the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their fruits, and the price with its interest,
except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

Effects of Annulment
(a) If the contract has not yet been complied with, the parties are excused from their obligations.

(b) If the contract has already been performed, there must be MUTUAL RESTITUTION (in general) of:

1) the thing, with fruits;

2) the price, with interest.

1399-When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited by
the thing or price received by him.

Generally, No Restitution by Incapacitated Party

(a) The Article applies only if the defect is INCAPACITY.

(b) This constitutes an exception to the obligation of mutual restitution under Art. 1398.

(c) Here in Art. 1399, restitution is only to the extent of enrichment (pecuniary or otherwise).

No Presumption of Enrichment

The law does not presume this enrichment or benefit; therefore, the capacitated person has the burden
of showing such enrichment. Just because the property had been delivered, it does not necessarily
follow that there was enrichment. Of course, if the incapacitated person still has the property, this by
itself is a benefit which he must return and not squander; otherwise, this will amount to a ratification.

1400- Whenever the person obliged by the decree of annulment to return the thing cannot do so
because it has been lost through his fault, he shall return the fruits received and the value of the thing
at the time of the loss, with interest from the same date.

Value May Be Substituted for Thing Itself

In the duty of mutual restitution, the value of the thing with interest substitutes for the thing itself that
was lost thru the party’s fault.

Example

A forced B to sell him (A) the house of B. B brought an action to annul the contract. The contract was
annulled on the ground of fraud. A was asked by the court to return to B whatever he (A) has received.
But the house had been destroyed through the fault of A. What should A now give?

ANS.: A should give all of the following:

(a) the fruits or rentals of the house received from the time the house was given to him to the time of its
loss;

(b) the value of the house at the time of the loss;

(c) interest at 6% per annum on the value of the house from the time the house was destroyed.

1401-The action for annulment of contracts shall be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the
thing shall not be an obstacle to the success of the action, unless said loss took place through the
fraud or fault of the plaintiff.

1402-As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is incumbent
upon him.

Reason Why One Party Cannot Be Compelled if Other Party Does Not Restore

A reciprocal obligation of restitution has been created.

Example

A forced B to take A’s car in exchange for B’s ring. B asked for annulment, and the court gave the decree
of annulment ordering each to return what had been received. B refused to give A the car. May A be
compelled to give back the ring? No.

Effect of Loss Thru Fortuitous Event

Suppose the innocent party cannot restore because of a loss thru a fortuitous event, may he still compel
the other to return what he had given?

ANS.: It would seem that the answer is NO, because before annulment, the contract is valid, and the
innocent party, being the owner of the thing lost by a fortuitous event, must bear the loss. There is
however an exception, and it occurs when he offers to give the value of the thing. (He does not have to
give interest in view of the fortuitous event.) He must be allowed this remedy; otherwise, he would be in
a worse position than one who had destroyed the thing thru his fault. Once he exercises this remedy, he
can recover from the other what has been previously given.

UNENFORCEABLE CONTRACTS
Unenforceable Contracts Distinguished from Voidable and Rescissible Contracts

-Unenforceable contracts cannot be sued upon or enforced unless ratified; thus, it is as if they have no
effect yet. But they may be ratified; hence, they can have in such a case the effect of valid contracts. In
one sense, therefore, they may be called validable.

-Voidable and rescissible contracts, upon the other hand, produce legal effects until they are annulled or
rescinded.

-Thus, unenforceable contracts are nearer absolute nullity than the other two.

Kinds of Unenforceable Contracts

(a) Unauthorized contracts.

(b) Those that fail to comply with the Statute of Frauds.

(c) Those where both parties are incapable of giving consent to a contract.

1403-The following contracts are enforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note
or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences,
or some of them, of such things in action, or pay at the time some part of the purchase money; but
when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of
the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or
of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

Unauthorized Contracts -“those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers.”

1404-Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of
this Book.

1405- Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to prove the same, or by the acceptance of
benefits under them.

Ratification of Contracts Infringing the Statute of Frauds

Two ways of ratification of contracts infringing the Statute of Frauds are given here:

(a) failure to object to the presentation of oral evidence (this is deemed a waiver).

(b) acceptance of benefits under them (thus, the statute does not apply to executed or partially
executed or performed contracts).

[NOTE: Partial performance of a contract of sale does not only occur when part of the purchase price is
paid. There are other acts of partial performance such as possession, payment of taxes, building of
improvements, tender of payment plus surveying of the lots at the buyer’s expense.]

Example of Waiver

Cross-examination of the witnesses testifying orally on the contract amounts to a waiver or to a failure
to object.

1406- When a contract is enforceable under the Statute of Frauds, and a public document is necessary
for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article
1357.

Right of One Party to Compel the Other to Execute the Needed Instrument
It must be stressed here that the right of one party to have the other execute the public document
needed for convenience in registration, is given only when the contract is both valid and enforceable.

Example

A sale of realty in a private instrument is not valid and enforceable; hence, a public document may be
executed so that the sale could be registered. An oral sale of real property is not enforceable; hence,
one party cannot compel the other to execute the public document. However, if said oral sale of real
property has been ratified, then it is now both valid and enforceable, and a public document may be
made so that the sale can be registered.

1407-In a contract where both parties are incapable of giving consent, express or implied ratification
by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract
the same effect as if only one of them were incapacitated.

If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the
contract shall be validated from the inception.

Contract Where Both Parties Are Incapacitated

Example: A and B, both 15 years old, entered into a contract. The contract is unenforceable because
both parties cannot give consent. Now if the guardian or parent of A ratifies expressly or impliedly the
contract, it becomes voidable, valid unless annulled by the guardian or parent of B. However, if the
guardian or parent of B also ratifies, the contract is validated right from the time it was first entered
into.

1408- Unenforceable contracts cannot be assailed by third persons.

Strangers Cannot Assail Unenforceable Contracts

Just as strangers cannot attack the validity of voidable contracts, so also they cannot attack a contract
because of its unenforceability. Indeed, the Statute of Frauds cannot be set up as a defense by strangers
to the transaction.